Outside Investors and Price-Gouging
As we progress through 2021 and head into 2022, after a pandemic ravaged the incomes and welfare of millions of Americans, a strange problem has begun to grow at a rapid pace. Housing, which has generally been regarded as the only easy immediate asset to obtain for the middle class, has begun to disappear. In the Tampa, Florida area, housing prices have jumped almost 40% in two years. The main reason for this is investors buying and overpricing properties. As usual, there are buyers who can pay the extra cost, so these homes generally sell. It takes longer and it is sometimes a risky business, but in a growing urban area, the risk is minimized.
But what about the worker making say $45,000/year? A house which was 145G two years ago has almost or maybe even doubled in price. A 300G mortgage is a lot for that income level, if they can even get financing. Then there’s the 10% down payment. YIKES! A working person having 30 thousand bucks laying around is highly unlikely. As George Bailey says, as he lambastes Mr. Potter in It’s A Wonderful Life: …”Do you know how long it takes a working man to save five-thousand dollars?” A long time, even now 75 years later. 30,000 is just ridiculous!
Would Be Home Buyers Become Renters
So, our 145G home is now listed for 310G. An investor buys it for 299G. They then put it on the market for rent. Had it sold close to its original value, a renter might have paid $1200 per month. Now that rent is over $2,000. For comfort, fair housing costs are estimated at 30% of a person’s income. 24,000 (rent per year) is 30% of over $70,000 per year. Remember our income is only $45,000? In addition, because the house is now overpriced for the rental market, and that is the trend in their region, our worker has few options left. They can purchase a mobile home, if it is on a slab and they can get financing. They can look for a home which is for sale by the owner, but they will still likely overpay. Getting financing for that may also prove trickier. It has become an overpriced maze which will likely cause another dramatic price-drop, but who can wait?
Workers need housing and if they have a new job, it becomes a priority. If they cannot find affordable housing, they often have to turn down a job offer. So, many opt to rent, even if they can pay a mortgage, because they simply cannot manage a huge down payment. This leads to a one-way transfer of wealth, rather than in a two-way investment. A bank pays for your house, you pay them back. You get a property investment, they receive interest income. Properly managed, this is a fine system. See our post about debt, however, so as to avoid overextending the payment process.
A renter has no ability to build equity and is often at the whims of careless and flighty property owners whose notion of rental income rarely translates to capital to repair the property over time. It’s pretty clear to anyone who drives through a neighborhood who cares about their properties and who does not. This makes renting a high-risk low reward choice, yet it can be all that remains for too many workers. I personally rented two houses where the leaking roof was not a high priority for the property owners. Imagine that! That’s a high risk that renters have no way of knowing they could suffer, unless there’s visible carelessness. In that case, just walk away.
What Is A Worker Anyway?
For the purposes of this post, a worker is anyone who earns a living at a job or business who is neither a wealthy business owner, or an heir to fortune. That is the vast majority of us who live and work worldwide.
What Options Are There?
If you’ve read much of the site, you already know one thing you can do, petition your legislators to make the system fair again. In a given area, a majority of housing is neither for sale, nor rent. It’s largely occupied. This means overpricing can happen simply from forced need. This brings us back to square one.
Increased incomes should have happened already, over time. Prices have risen in all sectors consistently since Reagan ushered in “trickle-down” economics, the biggest lie/joke in the history of economics, but wage incomes have remained stagnant. Better wages would allow housing prices to stabilize, but would also allow workers to build future investments so retirement does not require supplemental income or medical.
A citizen-based legislature would disallow worker exploitation and would force billionaires to pay their workers fairly. They would not allow over-investing in housing and price-fixing, and would force a fairer situation. The concept of the homeless worker is not new, even to the USA, but as housing prices rise and incomes do not, it is becoming an increasing issue.
Options For Finding Housing
For now, if you are seeking housing, budgeting and careful research are your best options. A group investment in an income property is also a good option, where the investor then uses profit to purchase their home. As for down payments, generally less than 10% can be negotiated, but increased financing payouts are the trade-off.
zillow.com is one place to start, but local multi-listing agents may still be the best source for buyers who want to purchase in specific areas. Research options, plan for upsale or rental investments, and seek roomies to share housing if possible. Until the housing market balances itself, and it will, creativity is important and fiscal leverage is helpful. Seek help which specializes in your personal issues. No down payment cash, but good jobs? Many lenders can help, but online mortgage specialists can also help. Not enough income to afford housing in an area? Start outside the area and consider public transportation where available. Again, heavy budgeting is a friend here, as inconvenient as it might be.
In the meantime, help us fight for fairer wages and laws which prevent overpricing of homes by systemic price-fixing and gouging. Research who your representatives are at USA.gov and contact them. Join fair protests and behave well. The rich expect everyone else to support a system wherein only THEY benefit. We don’t believe that is either fair, nor particularly healthy for our economy. There’s nothing wrong in demanding better!